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Profit-Based Compensation and Corporate Tax Evasion

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  • Jing Jun Chang

    ()
    (Department of Taxation and Finance, National Taichung Institute of Technology, Taiwan)

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    Abstract

    This paper attempts to analyze corporate tax evasion in a principal-agent framework. We assume that the firm's profit is positively related to managerial effort and that the executive compensation is profit-based. In addition, we consider the situation where the manager might underreport the firm's earnings to the shareholders or to the tax authorities and consume the unreported income as rent when the manager possesses private information regarding the firm's earnings. We show that, under these considerations, the production decision and tax evasion decision are not separable; moreover, the profit taxes are not neutral.

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    File URL: http://www.jem.org.tw/content/pdf/Vol.7No.2/02.pdf
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    File URL: http://www.jem.org.tw/content/abstract/Vol.7No.2/English/02.htm
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    Bibliographic Info

    Article provided by College of Business, Feng Chia University, Taiwan in its journal Journal of Economics and Management.

    Volume (Year): 7 (2011)
    Issue (Month): 2 (July)
    Pages: 185-198

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    Handle: RePEc:jec:journl:v:7:y:2011:i:2:p:185-198

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    Related research

    Keywords: profit-based compensation; the neutrality of profit taxes; tax evasion;

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